 Can everybody hear me okay? So Nick and I were just talking, we compared notes a little bit before this, but we haven't actually seen each other's slides, so we just figured that he'd give my talk and I'd give his and we'd sort it all out of the Q and A, how does that sound? Well actually, I don't know, if anybody else can make sense of my slides, so I better do them myself here. Happy to be with you today to talk about one of my favorite or least favorite topics depending on the day, paywalls. Before we start though, you're gonna need a little background. This is me, circa 1991. The nerdy kid in the picture is running a BBS, a bulletin board system. I figured there are few people here who would know what that was. On an IBM PC clone with a blazing fast 14.4 kilobit modem. This was state of the art at the time. Now he is a very happy nerd because he's just discovered the ability to communicate with people all around the world for the price of a local phone call, right? About three years later, this kid would discover the worldwide web and it would blow his mind again. It would also sort of firmly establish in his consciousness the notion that information wants to be free. I will spare you my William Wallace impression. So imagine my surprise when this happened. I was just a few years out of journalism school. I wanted to become a journalist in part because of this excitement about information wanting to be free. And I was working at the Columbus Dispatch newspaper in Ohio, some of you may know it. I talked to someone from Columbus last night. It was one of the first newspapers in the country to launch a paywall back in 2002. And a letter from the editor announced the change. It said, if you don't have a subscription to the paper, you will pay for dispatch.com. Kind of punitive, right? The best line though was this one. If you want a milk dispatch.com for information, you're going to have to help feed the cow. This is Columbus, Ohio, right? It made perfect sense there. So what happened? Well, the paywall launched. It was a hard paywall, so traffic predictably cratered. Very few people subscribed. And I left with a bitterness about paywalls that would take me years to overcome. So over the next decade and a half, I developed a little bit of a more nuanced view about the cost of information and who should pay it. I spent most of my time doing digital things at these three newspapers. Yes, I love the Gothic type on a screen. There's something about the juxtaposition of the ancient and the modern that really gets me right here. So all of these places have paywalls today, but they didn't when I started. And so I really sort of lived through this cycle of promise and disillusionment that came from the ad-supported business model. At every turn and with every trend was a new opportunity for publishers to fail. We did a lot of failing. And with every failure, the duopoly gobbled up a little bit more of our market share. Does it sound familiar? So now I know, and this may be painfully obvious, especially in retrospect, but for me, well, I'm a slow learner. So it took me a while to figure this out. Information only wants to be free if somebody somewhere is paying for it. And advertisers, of course, didn't really care about paying for any information other than their own. And why should they, right? This is not their job. By the way, I'm not saying that advertising shouldn't be an important part of the revenue mix of digital publications, but we have to see it for what it is. And at least sometimes what it is is a distraction. So let's call the Columbus Dispatch Experiment Paywall 1.0. It's what my grandmother might have called rude, crude, and unattractive behavior. And I don't mean to throw my former employer under the bus. There were many, many organizations that were in very similar situations at that time. And it's hard to imagine anybody with a solution, a paywall solution at that time that would have worked. But since then, well, a lot has changed. For one thing, the quality of digital journalism and of the user experience has gotten a lot better. And that's things in part to many of the people in this very room. Home page traffic, which used to be sort of our bread and butter and we forgot about it for a while and we're very happy to take traffic from search and social. All of a sudden publishers realized how important this was, right? And we rededicated ourselves to those most loyal, most willing to subscribe users who are coming in through the front door. And perhaps most importantly, over the last several years, we've really discovered that people are becoming accustomed, right? Have become accustomed to paying for content. I mean, this is really thanks in part to the Facebook, sorry, not Facebook. The Amazons and Apples of the world, folks like Netflix and Spotify, right? They have in some ways kind of paved the way for us and we're benefiting from that. And there's a related fourth reason. People increasingly understand that on the internet, as in life, you get what you pay for. And with the crisis of trust in media over the last few years, we've really seen that free content tends to come with a lot fewer assurances of truth and fairness and journalistic rigor. So now here we are in year eight, really, of what I'll call Paywall 2.0. This is the era that really was launched with the founding of the New York Times paywall back in 2011. The Times wasn't the first. In fact, this wasn't even the Times's first experiment at a paywall, but it was the first general interest news site in the U.S. to have real success in charging for content. And why did the Times succeed when a lot of people had failed? Well, they had this not-so-secret weapon, the meter. What we all know now is that the meter is this simple and elegant way to extract revenue from your heaviest users without killing audience reach or ad revenue. And the meter does something else, though, that I think is really important. After years of operating under a digital business model that ran counter to user experience, finally, publishers found that this new approach really brought the needs of the user and the needs of the business into alignment. By rewarding both reach and depth and putting the user experience at the center of everything we do. This model was successful, of course, and the meter was copied a thousand times over and the sites that have adopted it, I think, are generally stronger for it. So great. Problem solved. The user is our North Star. We are finally getting paid according to the quality of the work that we do and not just how many ad impressions we can deliver. All is right with the world, right? Well, clearly not because otherwise we wouldn't be having a panel discussion on day walls. So bear with me because here's where we're gonna get into a few numbers. I wanna look at the typical meter. This is data from the Lindfest Institute, sourced from about 500 publishers who were customers of the Press Plus paywall solution through about 2015. So the data is a little bit old but we can still draw some good, general conclusions from it. Now this graph shows the performance of the average publishers paywall. It was in the 50th percentile. This full width of the graph represents a monthly unique users for a publisher. The little yellow bit on the right is how many people actually saw the paywall and the tiny sliver there is how many people actually subscribed in a given month. So what stands out here? Well, first off, how many people never even see the paywall to begin with? How many people are never even asked to pay? And then of those, that minuscule conversion rate of half a percent. Now on a typical, let's give an example. So a site with about a million unique visitors a month would end up with about 100 new subscribers with these numbers. So let's look at a highly successful publisher, one in the 95th percentile in terms of meter stops and conversion rate. Here the picture gets better, right? We've got 8% of monthly unique visitors who saw the wall and 2% of those actually converted. So again, on our million unique visitor site, that's about 1600 new subscribers a month. And that is a number you can actually start to imagine building a business around if you can sustain that rate. But now remember, these are monthly rates. So what does this look like over time? Here are a few of the more successful, more commonly cited meter paywalls. All have been in operation since 2011. So for some time now. And there's a couple of caveats. One is the New York Times number I was only able to find like the overall number for all of its products, including non-core products like crosswords. And also I should note that the Boston Globe started with a hard paywall before moving to a meter a few years later. But still generally sort of roughly apples to apples here. We can see that the subscriber rate is somewhere in the one to 3% range of unique users. So that's for paywalls that have been around for a while. Now the New York Times has been able to grow internationally, which might explain why their numbers are continuing to grow. But those sites that have a little bit more of a constrained geographic footprint, you can see how they may be approaching some of the limits of their current subscription strategies. And part of this is because of churn. Even the best performing publishers according to the Linfest Institute data were only able to retain about two thirds of their paying subscribers after a year. This means that a good number of those new subscribers that we were signing up in the two previous slides are just going to replace people who have canceled. Now the meter is designed to skim off the most engaged users. And it's actually pretty good at this, right? These are the people that we can assume are the most likely to subscribe. And it does it pretty well, but it's a crude segmentation tool. And we can see why publishers meter strategies are starting to show some signs of strain. In many cases, they've already converted a lot of the people who are their most likely subscribers. So what are they doing? They're pulling back, right? They're tightening those meters. We used to be, you know, we could see 10 to 20 free articles a month. Now it's more common for publishers to be in the five, maybe five articles or even three or two I've seen. And they're taking that 30 days stretch and they're actually, in some cases, expanding it to 45 days. So you can very quickly see that this notion of try before you buy is getting sort of stretched beyond recognition here. And as they do this, two things happen. Yes, more people do see the paywall and more people do subscribe. But also a larger proportion of those interrupted visitors, as you can see here, bail out without getting what they came for. We proceed to alienate an ever-growing percentage of our most engaged audiences. And the ones who do subscribe tend to be less loyal and more likely to churn because they didn't really, maybe they didn't want it as much as the ones who subscribed before. So imagine a world in which everybody has a paywall. It's not actually that hard to imagine these days. Bloomberg, Wired, The Atlantic, almost certainly your local newspaper. More and more people are setting up paywalls. And keep tightening, keep tightening. The prices may be going up. And quickly you start to understand the problem that we're facing. And I know that you and I are probably not representative of typical users and it's always dangerous to extrapolate from one's own personal experience. But for news junkies, this is already starting to be a drag, right? Just a show of hands, how many people have become masters of the incognito window? Be honest, okay? So like, let's face it, if we all had to subscribe to all the sites that we derive value from, we'd be broke. They'd be doing great, but we'd be broke. And have you ever tried to cancel? Most publishers make it pretty well impossible to do online. You have to pick up the phone to do it. And yet they still manage to lose a lot of people. In fact, one of the most common causes of subscription cancellation is that people just don't update their billing information when their credit cards expire. So they can't be trouble to actually call, so they just let their cards expire and that's how they cancel. Interestingly, the state of California has just done something that should make life easier for a lot of users and probably a little bit more challenging for a lot of publishers. You may have seen that this law went into effect last month, I think it was, that requires publishers and really any merchant that offers recurring billing online to also allow people to cancel online. So those churn rates that we talked about are about to get worse. The law also requires clearer language about people, about the sneaky introductory offers that we give people, the ones that say one penny for the next six months or something like that, and then the actual price in small numbers below. So this really has a potential to be, at least for publishers who want to do business in California, a one-two punch. Now you put all this together and I would say, and I don't think I'm the only one here, that the paywall backlash is well and truly upon us. Now, so far I've focused on the meter because it's probably one of the most popular models, but I just want to zoom out for a moment to what I'll call the openness continuum, which includes all of the ways in which publishers ask users to give them money. From the most open, favored by public media and nonprofits, where basically no information is held back, we just ask you to give us some money to support the work that we do, all the way over to the fully subscription products where if you want to get anything at all, you need to subscribe. And then in the middle, the variety of different models, including the meter, but also including things like the intelligent meter that the Wall Street Journal uses that kind of varies the amount of free consumption based on some fuzzy logic that nobody other than the Wall Street Journal understands, or the kind of premium products like what Business Insider does with BI Prime, where they hold back some of their most premium information for subscribers. The problem with that, of course, is that what one person considers premium, somebody else might not, right? So now here's what's interesting. If you think about the proliferation of closed products, the tightening of paywalls and the raising of prices, all of these things really have this common motivation. It's publishers trying to extract as much revenue as possible out of that tiny sliver of people who are willing to pay. This is not that fair, and I would say it's not very open either. And the contribution model has a lot going for it. And it's a great thing for organizations that can work that way. But contributions alone are not going to solve the industry's revenue issues. And to illustrate why, let's take a look at the top reasons why people say they subscribe. This is data from an American Press Institute survey that is basically a newspaper paywall subscribers. So it is a little bit constrained in the sample, but I think we can extrapolate some insight from it. The question was, what was the motivation for subscribing? And people could answer, people could actually give multiple answers to this question. And yet, fewer than a third said that they did it to support the journalism. And as a journalist, this kind of makes me sad, but I also recognize that people have less altruistic reasons for subscribing, and that's okay. Our economic system is built on people paying for things they find valuable. So why should news and information be any different? Now, I find it helpful to really kind of think about and explore problems before setting about trying to solve them. So thank you, if that's not the way you work, thank you for sort of indulging me here. It's a long wind up to what's actually a pretty simple problem. There aren't enough good ways for users to compensate publishers in proportion to the value that they get from the work that we do. That's basically it. But is this really a problem that publishers should care to solve? I'd argue yes, in part because if we don't, our friends at Apple and Google and Facebook and others will likely do it for us. So to illustrate the opportunity, here's a little thought experiment. These days, I work as a consultant, but I wanna announce that I am taking some time out of my consulting work to become the publisher of the Yaknapatafa Pikiun. We are an imaginary publication for an imaginary audience, somewhere in the imaginary south of William Faulkner. Here is our tagline. We cover the south like Kudzu. If you don't know what Kudzu is, you can ask a Southerner. The Southerner will tell you after the talk if you wanna talk to me. And yes, I did actually register that domain name because it's six letters after all, and who knows, it could be valuable someday. So we are a very small operation, so small in fact that we can, our unique user count is a nice round number of 100. So we can assume that half of those people are flybys, we'll never see them again. And remember the sort of average rate of subscriptions, about 2%, so let's say two people are subscribers. Now I can't afford actual persona research, so my two subscribers are my mother and my aunt Virginia. And mom and aunt Jenny love the Pikiun. They read it all the time. In fact, they may be responsible for up to a third of our page views. And so they're diehards, right, and they subscribe. But what about all these other people? They get value too, right? But they don't evidently get enough value that they've been persuaded to subscribe. Now let me ask you, what business model can you think of where 2% of the customers subsidize the consumption of the other 98%? I was thinking about this and it occurred to me that actually insurance business works in the opposite way where a large number of people subsidize the cost of a small number of people, and we're okay with that because we don't know when we might end up in that small group. But the other way around, I can't think of anything, actually the only thing that I could think of that where a small percentage of people cover the cost of a large group is philanthropy. And my mom and my aunt are nice people but they're not that generous. So at the Pikiun, we don't wanna keep people who really can't afford our journalism from accessing it. But we can't afford also to subsidize all of these people. But what if we could find a way to get a little bit of money out of say a sixth of this group of people in the funnel? If we could get eight more people to pay us something, whether it's for a day pass or for a couple of articles or something like that, we actually, well, we multiply by five the number of people that we have a paying relationship with in a given month. Now here's what the math looks like. Remember in the original scenario, we had two subscribers, my mom and my aunt, each pay let's say $10 a month. So we get 20 bucks from them. But if we are able to actually get say $2 from the non-subscribers through a combination of individual articles or day passes or week passes or something like that, we can nearly double our income. And I know what you're thinking. Yes, if you offer a cheaper option, some of your subscribers will take it. And you're right. But I would say that that risk can be mitigated through pricing so that your lower price products don't actually siphon off too many of your more expensive, more valuable people. And so say if we lose half of our subscribers. And my aunt, Jenny, decides that she's just gonna pay to read an article every once in a while. Well, we still come out ahead. And this is actually similar to an approach being tried right now at the Winnipeg Free Press up in Canada, which offers micro payment options alongside traditional subscription offers. But micro payments, really? We've tried that before, right? It doesn't work. Maybe. I mean, we tried it back in the paywall 1.0 era when nothing was working. And I'm not sure how seriously it's been tried at least in this country since then. But also, it's not just micro payments, I think, that will define the paywall 3.0 era. I'm actually really encouraged by some of the innovation and new ideas that are taking place around the notion of consumer revenue for publishers. And I'll just talk about a handful of the organizations that I'm aware of that are doing some interesting things. But I imagine that there may be some people even in this room who are working on stuff that I'm not aware of, and I'd love to get into some of that in the discussion after this and after next talk. So first off, even within the subscription world, there are some interesting things happening. First off, Google has said, for example, that it's going to give publishers some hints about the propensity to subscribe of its own users. So publishers who use the subscribe for Google function can actually maybe deliver a different experience to those who are more likely to subscribe. And then there's bundling, right? The elusive Netflix for news that we've been wanting, or at least users have been wanting for some time, and it's evidently much harder to pull off than Netflix for TV, partly because publishers have long enjoyed this direct relationship with their audiences that they're understandably a little reluctant to give up. Nonetheless, there's some interesting movement on that front, notably, and no doubt you've heard about Apple's acquisition of Texture, the magazine aggregator. They've just dropped the price on that to 10 bucks a month, which looks like they seem to be going for scale in a way that only Apple can. And so far, this is only magazines, but it's a very walled garden approach. And with the scale of Apple, it's something that I think has some worries and implications for the open web, but definitely bears watching. So over on the micropayments front, there are some promising developments too. And I'm gonna issue a disclosure here because I am working with one of the organizations, LaterPay, is a German company. I'm helping to kickstart their U.S. operations. And mainly, I wanted to help them because I believe in the concept. I mean, I really do think that micropayments deserve another chance, now that it's a lot easier for people to pay online and it's easier to process things, LaterPay's model in particular is a really low friction way for users to pay for small amounts of content without committing to a recurring subscription. There's also a contributions model that they support. And I happen to think that more payment flexibility is a win for the open web. Incidentally, LaterPay does have a WordPress plugin. Be happy to show it to anyone who wants to see it if you want to find me after it. Elsewhere in the micropayments world, there are a lot of things going on. I'll mention invisibly and brave, which are really interesting approaches to putting a value on users' attention. So if you consume advertising, you get credit, and then you can spend that credit on content. On the contributions and memberships front, there are a lot of people doing cool things, including the news revenue hub and the membership puzzle project, which are compiling and sharing best practices. Pactio, you may have heard of, is a crowdfunding platform that lets journalists go directly to their perspective audiences for funding. And finally, there's a lot of organizations at sort of the broader level of just publishing business models, looking at things from many angles, including the nonprofit Lindfest Institute in Philadelphia, whose data I have used in this talk and they own the daily newspapers there, where I used to work. It's a unique setup that was made possible in part by the generosity of, actually made possible in its entirety, by the generosity of Jerry Lindfest, the Philly billionaire who died on Sunday at 88 after giving away most of his fortune. He saw sustainability of quality local journalism as his most important legacy. Anyway, my point is that this is not easy stuff, but there is a lot of encouraging news on this front, and there's a lot of really super smart people and committed organizations in the mix here. So what can we do as publishers to make the Paywall 3.0 era as successful and rewarding for our users and hopefully for us? Well, we can start as publishers, I think always should, with the audience, by really listening to them and thinking about not just the audience, but people who aren't yet our audience. And survey them, interview them, invite them for coffee, yes, scour your analytics and understand their behaviors, but also understand things that are deeper, like their goals and motivations. And then consider how you can fit into their lives, both with the products you have and maybe products you haven't invented yet. And remember, not everybody is going to subscribe, but some people may actually pay you in other ways. So experiment, and I think we're in luck because I believe there is a talk about this very topic coming up next. Try different business models, different calls to action, pricing tiers, price points, make hypotheses, turn assumptions into knowledge, and then share what you learn, because really we're all in this together. One of the many reasons that I love both the news industry, the journalism world, and the open source community is that both are unfailingly generous. They recognize that we don't any longer live in a zero-sum economy, and that we benefit by collaborating and sharing tools and best practices and ideas and insights. And it's why we're all here. We're stronger when we work together, and we're smarter when we learn together. And so I look forward to working and learning with all of you on the road to building sustainable and resilient businesses. So, thank you.